Revised and Revamped

Study Dossier

Depreciation

Sanjay K. Welkins

Welkins Educational Inc.

Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 2

Chapter - 10

Meaning of Depreciation
Depreciation is a permanent, continuous and gradual shrinkage in the book value of a fixed asset. It is the
fall in the quality or value of a fixed asset through physical wear and tear due to use or passage of time or
from any other cause. Depreciation takes place irrespective of regular repairs and maintenance. As the
asset is used for business purpose, the annual loss in the value of the asset is like any other expenditure.
Hence, the cost of fixed assets has to be written off over its useful economic life as a loss.
Thus, depreciation is a process of allocating the cost of a fixed asset over its estimated useful life in a
rational and systematic manner.
Definition of Depreciation
The Institute of Charted Accountants of India has defined depreciation as “a measure of the wearing out,
consumption or other loss of value of a depreciable asset arising from use, effluxion of time or
obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair
proportion of depreciable amount in each accounting period during the expected useful life of the asset.
Depreciation includes amortisation of assets whose useful life is predetermined.”
Depreciation Accounting has been defined by the American Institute of Certified Public Accountants as “ a
system of accounting which aims to distribute the cost or other basic value of tangible capital assets less
salvage (if any) over the estimated useful life of the unit (which may be a group of assets) in a systematic
and rational manner. It is a process of allocation and not of valuation.”
Characteristics of Depreciation
The following are the important characteristics of depreciation:
(i) Depreciation refers to a permanent, continuous and gradual decrease in the utility value of a fixed
asset and it continues till the end of the useful life of the asset.
(ii) Depreciation is a charge against profit (i.e. revenue earned) for a particular accounting period.
(iii) Depreciation is always computed in a systematic and rational manner since it is not a sudden loss.
(iv) Depreciation is a process of allocation of expired cost and not of valuation of fixed assets.
(v) Whatever method for calculating depreciation is followed, the exact amount of depreciation can never
be calculated, and it can only be estimated.
(vi) Depreciation is caused due to physical factors and functional factors.
(vii) The fundamental objectives of depreciation are - (a) to maintain the nominal capital invested in fixed
assets, and (b) to allocate the expired portion of the cost of fixed assets over a number of accounting
periods.
(viii) Depreciation is must, i.e. it always takes place whether the asset is carefully handled or neglected.
(ix) If the market value of a fixed asset is fluctuating, the same does not affect the amount of depreciation
so made on the respective assets.
(x) Depreciation is calculated in respect of fixed assets only, i.e. plant, machinery, furniture etc.
(xi) Total depreciation cannot exceed its depreciable value or original cost where the scrap value is nil.
Causes of Depreciation
(i) Physical Wear and Tear Resulting from Use: Tangible fixed assets like, machinery, buildings, furniture
etc. get worn out or torn out on account of friction, strain, weathering, intensity of use, chemical reaction,
handling etc. This is the most important cause of charging depreciation in respect of such assets which
are in constant use.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 3

(ii) Physical Deterioration Resulting from Atmospheric Exposure: Number of assets deteriorates for being
continually exposed nature.
(iii) Passage of Time: A machine also becomes potentially useless by the passage of time. It is so even if
the machine is kept continuously idle.
(iv) Depletion: Wasting assets such as mines and quarries lose their value because they get exhausted
on account of continuous extractions.
(v) Obsolescence: Sometimes an asset becomes useless because of technical changes within the
industry, technical progress in other industries, changes in tastes and habits of consumers, changes in
supply and locations of natural resources etc.
Objectives of Providing Depreciation
The objectives of providing depreciation are as follows:
(i)To ascertain the correct profit: When a particular asset is used for earning the income of the
business, the depreciation in the value of assets should be deducted from the income in order to calculate
the correct and real profit of the business.
(ii) To present true financial position: In order to show the true financial position of the business in the
balance sheet, it is necessary that assets must be shown at their true values after deducting reasonable
depreciation. If depreciation is not provided, the assets will be overstated in the financial statements and it
will be against sound business principles.
(iii) To make provision for replacement of assets: Since depreciation is a non-cash expense, the amount
charged can be kept separately and utilised for the replacement of the fixed asset after the expiry of the
useful life of the asset.
(iv) To ascertain the proper cost of the product: In order to ascertain the cost of production, it is necessary
to charge depreciation as an item of cost of production.
(v) To maintain the capital invested in the cost of the asset intact in the business so that it can be
reinvested in profit earning process.
(vi) To derive maximum tax benefit.
(vii) To meet the legal requirements: In the case of joint stock companies, it is necessary to charge
depreciation on fixed assets before declaring dividends.

Factors in Measurement of Depreciation

The factors which affect measurement of depreciation are given below:
(i) The original cost of asset: The cost includes all cost incurred in acquiring the asset, i.e. purchase price
including transportation and installation costs, if any.
(ii) The additions, if any, made to the assets during the year taking into consideration the date on which
these additions were made.
(iii) The estimated useful life of the asset.
(iv) The scrap or the residual value of the asset.
(v) Obsolescence, i.e., the chance of the asset going out of fashion.
(vi) The working hours of the asset concerned.
(vii) The repairs and renewals.
(viii) The skill of the operators who handle the asset.
(ix) The legal provisions or other restrictions relating to depreciation.

ACCOUNTING CONCEPT OF DEPRECIATION

Depreciable assets are assets which
– are expected to be used for more than one accounting period;
– have a limited useful life and
– are held by the organization for use in the production or supply of goods and services.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 4

When a fixed asset is purchased, it is recorded in the books of accounts at its original cost. But, the fixed
asset is used to earn revenues for a number of accounting periods in future with the same acquisition
cost until the concerned fixed asset is sold or discarded. It is therefore, necessary that a part of the
acquisition cost of the fixed asset is treated or allocated as an expense in each of the accounting periods
in which the asset is used. This allocation of cost in the form of an expense is known as depreciation in
accounting.
Suppose, a business purchases a machinery for Rs. 1,00,00,000 and after using it for five years, it is sold
for Rs. 20,00,000. The cost of the machinery used in the business is Rs. 80,00,000 (100,00,000 –
20,00,000). This cost must be allocated as an expense of the business at the rate of Rs.16,00,000
(80,00,000 ÷ 5 ) for each of five accounting periods in which the machinery has been used to earn
revenues. This Rs. 16,00,000 charge as expense is called accounting concept of depreciation.
It is the cost for the services obtained from the use of the asset in the same manner as the cost of wages,
rent, etc. Depreciation is the expense charged to profit and loss account before arriving at the net profit
for the year. In other words, the cost of fixed asset in the form of depreciation has to be matched against
the revenues of the years over which the asset is used.
Thus, in accounting, depreciation means apportionment or allocation of the cost of the fixed asset over its
useful life. Its aim is to spread over and allocate or distribute the cost of the fixed asset to the years of its
use and charge the depreciable cost to profit and loss account before arriving at the profits of each of the
accounting periods in which the fixed asset utilized.

Purpose of Depreciation Accounting: The primary purpose of depreciation accounting is cost

allocation.
Provision for depreciation in the profit and loss account does not involve the outflow of cash and hence
funds to the extent of depreciation charged over the years will remain in the business and these funds
can be easily used for replacement of asset.

JOURNAL ENTRIES
(1) WHEN THE DEPRECIATION IS DIRECTLY CHARGED TO ASSET ACCOUNT:
Depreciation Account Dr.
To Asset Account
The asset account in this case appears at its reduced value in the balance sheet i.e.
Cost or book value XXX
Less: Depreciation for the accounting period. XXX
Depreciation expense is transferred to the debit of profit and loss account.
Profit and Loss Account Dr.
To Depreciation Account
(2) WHEN PROVISION FOR DEPRECIATION ACCOUNT IS OPENED:
For charging depreciation:
Depreciation Account Dr.
To Provision for Depreciation Account
For transferring depreciation expense to Profit and Loss Account:
Profit and Loss Account Dr.
To Depreciation Account
In this method, the asset account is not affected by the amount of depreciation and the value of asset
appears in the ledger and the balance sheet at its original cost. The amount of depreciation written off is
accumulated in provision for depreciation account.
When the asset is sold or discarded or exchanged for a new asset, the total accumulated depreciation for
that asset in the provision for depreciation account is transferred to that asset account by the following
journal entry. Provision for Depreciation A/c Dr.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 5

To Relevant Asset A/c

Thus, the balance in the provision for depreciation account always shows the accumulated depreciation
on the assets which are in use or not sold out.
In the balance sheet, the asset account is shown at its original cost less balance in the provision for
depreciation account.

On the assets side of the balance sheet

Relevant Asset A/c XXX
Less: Provision for Depreciation XXX
Alternatively, the asset account can be shown at its original cost on the assets side and provision for
depreciation account can be shown on the liabilities side. But the former method is better and
recommended.

Methods of Depreciation:

1. Fixed Instalment Method or Straight Line Method

Under this method, a fixed proportion of the original cost of the asset (less residual value) is written off
each year so that asset account may be reduced to its residual value at the end of its estimated economic
useful life. It is assumed that depreciation is a function of time. Depreciation is charged on a uniform basis
every year till the asset is written off.
Depreciation =
Original Cost of the Fixed Assets (Including Exp require to make asset into working condition) –
Estimated Scrap Value
Life of the Assets in Number of Year

Percentage of Depreciation = Depreciation x 100

Original Cost of the Fixed Assets
Note:
– Additional asset purchased during the year must be depreciated only from the date of purchase to the
close of the accounting period.
– When no date of addition is mentioned, depreciation may be charged for half of the year on the
assumption that addition was made in the middle of the year.
– Assets sold during the year should be depreciated from the beginning of the year till the date of sale.

ADVANTAGES
 It is a simple and easy method.
 The value of the asset can be completely written off, i.e. the value can be reduced to zero its
estimated scrap value.
 This method can be applied where asset gets depreciated because of effluxion of time like
furniture, equipments, patents, leasehold etc.
 There is no change either in the rate or amount of depreciation over the useful life of the asset.
 The value of the asset each year in the balance sheet is reasonably fair.
DISADVANTAGES
 The assumption that the asset shall be equally useful throughout its life seems to be
 illogical.
 It does not take into account the effective utilization of the asset.
 Even though the asset is used uniformly from period to period, the total charge for the use of the
asset keeps on increasing every year.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 6

 This is because cost of repairs in each subsequent year rises though equal amount of
depreciation is written off every year.

Question - 1
Green India Limited acquired a machinery on 1st July 2015 at a cost of Rs. 90,000 and spent Rs. 10,000
for its installation. The firm writes off depreciation at 10% per annum on the original cost every year. The
st
books are closed on 31 March every year. Show Machinery Account and Depreciation Account for three
years.

2. Diminishing Balance Method (Reducing Balance Method)

Under this method, depreciation is calculated at a certain percentage each year on the balance of the
asset which is brought forward from the previous year. The amount of depreciation charged for each
period is not fixed but it goes on decreasing gradually as the opening balance of the asset in each year
will reduce. Thus, amount of depreciation becomes higher at in the earlier periods and becomes gradually
lower in subsequent periods, while repairs and maintenance charges increase gradually.
Depreciation =
1-n – Net Residual Value
Cost of Acquisition

Rate of Depreciation = 1 – n
Where, n = life of the asset in years.

ADVANTAGES / DISADVANTAGES
– It is a simple and easy method. – It is difficult to determine an appropriate rate of depreciation.
– Every year, there is an equal burden for using the asset. This is because depreciation goes on
decreasing every year whereas cost of repairs increases.
– The value of the asset cannot be brought down to zero.
– The obsolescence problem is given due care since major part of the depreciation is charged in earlier
years and the management may find it easy to replace the asset.
– Depreciation is neither based on the use of the asset nor distributed evenly throughout the useful life of
the asset.
– Income tax authorities recognize this method.
– All items including additions are added together and depreciated at the same rate.

DISTINCTION BETWEEN STRAIGHT LINE METHOD AND DIMINISHING BALANCE METHOD OF

DEPRECIATION
 Depreciation is charged at a fixed rate on the original cost of the asset.
Depreciation is charged at a fixed rate on the original cost in the first year and on the written down value
(cost-minus total depreciation) in the subsequent years.
 (ii) The amount of depreciation remains the same in all the years of useful life of the asset.
The amount of depreciation goes on decreasing year after year.
 (iii) The total burden on the profit and loss account is more in the later years because the repair
charges increase while the amount of depreciation remains the same.
The total burden on the profit and loss account is almost same in the early years as well as is the later
years because of more depreciation plus repairs cost in the beginning and less depreciation plus more
repairs cost in the later years.
 (iv) The book value of the asset becomes zero or equal to scrap value.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 7

The book value never becomes zero.

 (v) It is easy to calculate the rate of depreciation.
It requires the use of mathematical tables.
 (vi) It is suitable where repair charges are less and obsolescence is not frequent.
It is suited where repair charges are more in later years and also where there is obsolescence.

Question - 2
R-99 Limited acquired machinery on 1st July 2015 at a cost of Rs. 90,000 and spent Rs. 10,000 for its
installation. The firm writes off depreciation at 10% per annum on diminishing balance method. The books
st
are closed on 31 March every year. Show Machinery Account and Depreciation Account for three years.

3. CHANGE IN METHOD OF DEPRECIATION

Consistency principle of accounting requires that same accounting practices and methods should be
observed and followed from year to year as otherwise the reported profit or loss will not be comparable.
Hence, it is expected that the concern should consistently follow the method of depreciation which is once
chosen. However, sometimes, a change in the method becomes inevitable.
According to “Accounting Standard-6 (AS-6) Depreciation Accounting”, issued by the Institute of
Chartered
Accountants of India, when a change in the method of depreciation is made, depreciation is re-calculated
in accordance with the new method from the date of asset coming into use. In brief, change in method is
permitted retrospectively, that is, from the date of purchase of existing assets.
Ministry of Corporate affairs vide notification dated 30/03/2016 notified Companies (Accounting
Standards) Amendment Rules, 2016 and vide this
Further Accounting Standard 6 on Depreciation Accounting, is omitted. Depreciation is now
covered by AS-10. As per AS-10 the depreciation method used should reflect the pattern in which
the future economic benefits of the asset are expected to be consumed by the enterprise.
The depreciation method applied to an asset should be reviewed at least at each financial year-
end and, if there has been a significant change in the expected pattern of consumption of the
future economic benefits embodied in the asset, the method should be changed to reflect the
changed pattern. Such a change should be accounted for as a change in an accounting estimate
in accordance with AS 5. It means Retrospective calculation of depreciation is now not required.
New method shall be applied now prospectively

4. CALCULATION OF PROFIT OR LOSS ON ASSETS SOLD

Assets may be sold or discarded before or on the expiry of its useful life. Then it is necessary to calculate
the profit or loss, if any, on such sale. For this purpose the book value of the assets at the date of sale is
to be calculated by deducting the total depreciation from the date of purchase to the date of sale from the
original cost. If the sale price is more than the book value there is profit on sale of the assets and if the
sale price is less than the book value, the difference will be loss on sale.
Profit or loss on sale of assets = Sale price of asset - Book value of the asset on the date of sale
Book value of the asset on the date of sale = Original cost of the asset – Total depreciation on the asset
till date of sale
The following journal entries are passed to record the above transactions when the depreciation
is directly credited to the asset account:
(i) On sale of assets:
Bank Dr.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 8

To Assets Account (with the sale price)

(ii) For profit on sale of asset:
Asset Account Dr.
To Profit and Loss Account
(In case of loss the above entry is reversed.)
When Provision for Depreciation Account is maintained then the asset account appears at its cost
price and the following accounting procedure is followed:
(i) Transfer of accumulated depreciation including the depreciation created at the time of sale:
Provision for Depreciation Account Dr.
To Asset Account
(ii) On sale of the asset:
Bank Dr.
To Asset Account
(iii) If the amount of accumulated depreciation and sale price put together is less than the original cost of
the asset, the difference is loss on sale and transferred to profit and loss account:
Profit and Loss Account Dr.
To Asset Account
(iv) In case the accumulated depreciation and sale price put together is more than the original cost of the
asset, the difference is treated as profit on sale and is credited to profit and loss account:
Asset Account Dr.
To Profit and Loss Account
When Provision for Depreciation Account is maintained on sale of asset, alternatively, it is
suggested to open an Rs.Asset Disposal Account’ in such case the following accounting entries
may be passed:
(i) On transfer of original cost of asset to Asset Disposal Account:
Asset Disposal Account Dr.
To Asset Account
(ii) On sale of the asset:
Bank Dr.
To Asset Disposal Account
(iii) On transfer of Provision for Depreciation Account to Asset Disposal Account:
Provision for Depreciation Account Dr.
To Asset Disposal Account
(iv) For profit on disposal of asset:
Asset Disposal Account Dr.
To Profit and Loss Account
(In case of loss the above entry is reversed.)

5. Depreciation Fund (Sinking Fund) Method

Under depreciation fund method, funds are made available for the replacement of asset at the end of its
useful life. The depreciation amount is fixed and remains the same year after year and is charged to profit
and loss account every year through the creation of “depreciation fund” or “sinking fund”. The amount of
annual depreciation is invested outside the business every year in good securities bearing interest at a
specified rate.
The aggregate amount of interest and annual provision is invested every year. When the asset is
completely written off or is to be replaced, the securities are sold and money realised by selling securities
is used to replace the old asset. Depreciation fund account is closed by transfer of its balance to old asset
account.
JOURNAL ENTRIES
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 9

(a) At the end of first year:

(i) For setting aside the amount of depreciation:
Depreciation A/c Dr. (with the installment calculated with the
To Depreciation Fund A/c help of Sinking Fund Tables)
(ii) For investing the amount of depreciation:
Depreciation Fund Investment A/c Dr. (with the amount in depreciation fund)
To Bank
Note: The depreciation account, of course, goes to the debit of Profit and Loss Account. The Depreciation
Fund Account and Depreciation Fund Investments Account are balanced and are shown in the Balance
Sheet, the former on the liabilities side and the latter on the assets side.
(b) In the second and subsequent years:
(i) For interest received on investments
Bank Dr.
To Interest on Depreciation Fund Investment A/c
(ii) For transferring interest to Depreciation Fund Account
Interest on Depreciation Fund Investment A/c Dr.
To Depreciation Fund A/c
(iii) For annual installment of depreciation:
Depreciation A/c Dr.
To Depreciation Fund A/c
(iv) For investing the amount of depreciation and interest received on investment:
Depreciation Fund Investment A/c Dr. (with the total amount in depreciation fund)
To Bank
(c) At the end of the last year:
In the last year, interest is received on investments and annual installment of depreciation is transferred
to Depreciation Fund Account as usual. But the amount is not invested because at the end of the last
year, old asset is replaced by new one which will necessitate the selling of all investments. Therefore, in
the last year entries Nos. (i), (ii) and (iii) are repeated. Thereafter, the following additional entries are
passed.
(i) For sale of investments:
Bank Dr.
To Depreciation Fund Investment A/c
(ii) For transfer of profit or loss on sale of investments:
In case of profit :
Depreciation Fund Investment A/c Dr. (with the net profit on sale of investment
To Depreciation Fund A/c
In case of loss :
Depreciation Fund A/c Dr. (with the net loss on sale of investment)
To Depreciation Fund Investment A/c
(iii) For sale of the old asset:
Bank Dr. (with the net amount realised on sale)
To Old Asset A/c
(iv) For transferring Depreciation Fund Account to Old Asset Account:
Depreciation Fund A/c Dr. (with the balance of depreciation
To (Old) Asset A/c fund account)
(The balance in the (Old) Asset Account represents profit or loss. It will be transferred to the Profit and
Loss Account.)
(v) For purchase of new asset:
(New) Asset A/c Dr. (with the cash realised on sale of old
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 10

To Bank assets & investments)

ADVANTAGES
A separate sum is provided for replacing the asset.
DISADVANTAGES
There is a fixed charge for depreciation. The charge for repairs increases every year. Hence, the profit
and loss account is unduly burdened in later years.

Question - 3
A company purchased 3 years, lease on 1st April, 2015 for Rs. 50,000. It is decided to provide for the
replacement of the lease at the end of 3 years by setting-up a depreciation fund. It is expected that
investment will fetch at 12% p.a. Sinking fund tables shows that Rs. 0.296349 invested each year will
produce Rs.1 at the end of 3 years at 12% per annum. The investments are sold for Rs. 28,500.
Give Lease Account, Depreciation Fund Account and Depreciation Fund Investments Account.

Question - 4
On 1st April 2014, L-88 Ltd., purchased a machine for Rs. 1,10,000 and spent Rs. 6,000 on its
installation. The expected life of the machine is 4 years at the end of which the estimated scrap value will
be Rs. 16,000.
Desiring to replace the machine on the expiry of its life, the company establishes a sinking fund.
Investments are expected to realize at 12% interest.
On 31st March, 2018, the machine was sold off as scrap for Rs. 18,000 and the investments were
realised at 5% less than the book value. On 1st April, 2018, a new machine was installed at a cost of Rs.
1,25,000, Sinking fund tables show that Re. 0.2092 invested each year will produce Re. 1 at the end of 4
years at 12%. Show the necessary ledger accounts in the books of L - 88 Ltd. for all the years.

6. Insurance Policy Method

Under this method, the business takes an insurance policy for required amount to replace the asset when
it is worn out. A fixed amount of premium is paid every year. However, this amount will have to be paid in
the beginning of each year. At the end of the specified period, the insurance company pays the agreed
amount with which the new asset is purchased.
(a) First year and subsequent years:
(i) At the beginning of the year, for insurance premium paid:
Depreciation Insurance Policy A/c Dr.
To Bank
(ii) At the end of the year:
Profit and Loss A/c Dr.
To Depreciation Reserve A/c
(b) At the end of the last year :
(i) On realisation of money from the insurance company:
Bank Dr.
To Depreciation Insurance Policy A/c
(ii) For transfer of profit on insurance policy:
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 11

Depreciation Insurance Policy A/c Dr.

To Depreciation Reserve A/c
(iii) For transfer of accumulated depreciation to the Asset Account:
Depreciation Reserve A/c Dr.
To Asset A/c
(iv) On purchase of new asset :
New Asset A/c Dr.
To Bank

Difference between Sinking Fund Method Insurance Policy Method

(i) Interest is an integral part of sinking fund method where as Interest is not considered under insurance
policy method
(ii) Investment in securities is the basic feature of sinking fund method however money is not invested in
any outside securities under insurance policy method. Only an insurance policy is taken for the required
amount to replace the asset at the end of the useful life of the asset.
(iii) Under sinking fund method, investments are made at the end of the accounting period.
Premium is paid in advance at the beginning of the year under insurance policy method.
(iv) Under sinking fund method, the amount realised is affected by fluctuations in interest rate and value
of securities.
But, under insurance policy method, the amount realised at the end of the life of the asset is fixed.

Question - 5
Y-77 limited purchases a lease for 3 for years for Rs. 60,000 on 1.4.2015. It decides to provide for its
replacement by means of an insurance policy for Rs. 60,000. The annual premium is Rs. 19,000. On
1.4.2018, the lease is renewed for a further period of 3 years for Rs. 60,000. You are required to show
necessary ledger accounts.
Books are closed on 31st March every year.

7. Annuity Method
The annuity method considers that the business besides losing the original cost of the asset also loses
interest on the amount used for buying the asset, which would have been earned in case the same
amount would have been invested in some other form of investment. Thus, this method takes into
account the interest factor. The amount of interest is calculated on the book value of the asset in the
beginning of each year. The amount of depreciation is uniform and is determined on the basis of annuity
table.
Journal Entries
(i) On purchase of the asset:
Asset Account Dr.
To Bank
(ii) For charging interest on asset:
Asset Account Dr.
To Interest Account
(iii) For charging depreciation:
Depreciation Account Dr.
To Asset Account
(iv) For transfer of Interest Account to Profit and Loss Account:
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 12

Interest Account Dr.

To Profit and Loss Account
(v) For transfer of Depreciation Account to Profit and Loss Account:
Profit and Loss Account Dr.
To Depreciation Account

Question - 6
G- 55 firm purchased a lease-hold property on 1st April 2018 for 5 years at a cost of Rs. 5,00,000. It
decided to write off the lease by annuity method presuming the rate of interest at 14%. The annuity table
shows that annual amount necessary to write off Rs. 1 in 5 years at 14% is Rs. 0.291284. Show the lease
account for 5 years.
Calculations to be made to the nearest rupee.

DISTINCTION BETWEEN SINKING FUND AND ANNUITY METHODS OF DEPRECIATION

(i) Under sinking fund method, the annual amount is set aside to a separate fund account. However, the
annual amount is not set aside to a separate fund account in annuity method.
(ii) Since annual amount set aside are invested in outside securities, sufficient funds will be available for
replacement of asset under sinking fund method. However, there is no provision of funds at the time of
replacement of assets in annuity method.
(iii) In sinking fund method, as the investment is made at the end of the first year, the first interest is
earned only during the second year. In annuity method, interest is assumed to accrue in the first year of
purchase of asset, therefore, it is charged from the end of the first year.
(iv) Under sinking fund method, the total depreciation is less than the asset’s depreciable cost due to
deduction of interest. However, in annuity method, as the interest is added to the cost of the asset, the
total depreciation is more than the depreciable cost of the asset.
(v) Under sinking fund method, interest is actually realised since it is to be received from investments
outside the business. In annuity method, interest is only assumed as against actual receipt.
(vi) Under sinking fund method, annual net effect on profit and loss account is same because of uniform
fixed amount of depreciation. However, in annuity method, annual net effect on profit and loss account
increases due to fixed depreciation charge and declining interest.
(vii) Under sinking fund method, interest realised is credited to sinking fund account, while interest is
credited to profit and loss account and debited to asset account in annuity method.

8. Sum of Years’ Digits Method

In this method, the charge for depreciation for an accounting period is calculated in proportion of the
remaining life of the asset at the beginning of every accounting period. The rate of depreciation is
determined by the fraction where denominator is the sum of the digits representing the life of the asset
and the numerators are individual digits used in the life of asset taken in reverse order.
Depreciation goes on decreasing every year.
Depreciation = Remaining life of the asset including current year x Cost of the asset
Sum of the digits of the life of asset in years

9. Double Declining Balance Method

Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 13

This method is similar to reducing balance method explained above except that the rate of depreciation is
double the straight line rate. Allowance for scrap value of the asset should not be allowed.
Advantages:
 The total cost of the asset is evenly spread over the economic life of the asset and such annual
charge includes cost of depreciation and repairs.
 Initially, the depreciation charged is more compared to subsequent years. This is advantageous
since there is considerable tax-saving, demand for funds in the initial year is more and money at
present is more beneficial than money in future.

10. Depletion Method

This method is applicable in case of wasting assets, e.g. mines, quarries, oil well etc. from which a certain
quantity of output is expected to be obtained.
Under this, depreciation is charged on the basis of output extracted in comparison with the estimated total
contents of mine.
Rate of Depreciation = Total cost of mine / Total units
Depreciation = Quantity extracted during the year X Rate of Depreciation
ADVANTAGES
– It relates depreciation with the use of the asset.
DISADVANTAGES
– It is difficult to estimate the output correctly.

11. Machine Hour Rate Method (Service Hours Method)

Under Machine hour rate method, depreciation is allocated in proportion to the degree of asset used for
production. The useful life of the asset is fixed in terms of hours. This method of depreciation can be
charged on plant, machinery, vehicles etc.
Rate of Depreciation = Original Cost of Asset (Including Cost of acquisition) - Scrap Value
Life of the Asset in Hours
Depreciation = Actual number of hours x Rate of Depreciation
ADVANTAGES
Depreciation is related to actual working time of the asset.
DISADVANTAGES
This method can be used only when the life of the asset can be measured in terms of hours.

12. Group Depreciation Method

Assets having same average life expectancy are grouped together. Depreciation is not charged for each
item but is charged for the group as a whole.

13. Inventory System of Depreciation

In case of assets of small value, the life of the asset cannot be accurately determined, e.g., loose tools,
cattle etc. Depreciation in this case will be calculated as follows:
Value of asset at the beginning of the year XXX
Add : Additions during the year XXX
Total XXX
Less : Estimated value of asset at the end of the year XXX
Depreciation for the year XXX

14. DEPRECIATION AND REPLACEMENT OF ASSETS

Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 14

In the context of present inflationary conditions, it will be appropriate to provide for depreciation on the
replacement cost instead of on the historical cost. This is because of the fact that depreciation is provided
for replacing the asset. Sufficient funds will not be available for replacing an asset at the end of its
serviceable life. If depreciation is provided on the basis of historical cost, there is substantial increase in
the cost of the new asset to replace the old asset. But following difficulties may crop up when
replacement cost system is used:
(a) Estimating replacement cost in advance is difficult.
(b) The method of charging depreciation on the basis of replacement cost is not recognized by income tax
authorities.
(c) The method of charging depreciation on replacement cost during inflationary conditions is preferred
but not during period of falling prices.
(d) According to the Companies Act, depreciation should be charged on the original cost of the asset and
any deficiency or surplus arising due to sale of such asset should be transferred to the profit and loss
account.
(e) Any new asset purchased, with few exceptions, is always of a better quality than the asset replaced.
Hence, it is difficult to calculate the cost of the asset replaced.
These difficulties can be obviated by taking the following steps:
(a) The additional amount required for replacing the asset over and above the original cost of the asset
may be estimated. Every year, an appropriate amount may be transferred from profit and loss account
besides usual depreciation on asset to provide for additional amount required for replacement of the
asset over and above the original cost of the asset. It may be debited to Profit and Loss Appropriation
Account and credited to Replacement Reserve account.
(b) The Replacement Reserve Account may be credited every year with interest at the current rate on the
accumulated balance standing to the credit of the account.

Miscellaneous Questions

Q.7
On 1.4.2010, a firm purchased machinery for Rs.2,00,000. On 1.10.2010; an additional machinery costing
Rs.1,00,000 was purchased. On 1.10.2011, the machinery purchased on 1.4.2010 was sold for
Rs..90,000. On 1.10.2012, new machinery was purchased for Rs.2,50,000 while the machinery
purchased on 1.10. 2010 was sold for Rs.85,000 on the same day.
The firm provides depreciation on its machinery at the rate of 10% per annum on original cost. It closes its
st
books of accounts on 31 of March of each year. Show the machinery account for three accounting years
ending on 31.3.2013.
Answer: loss on sale of machinery purchased on 1.4.2010 Rs.80,000. Gain on sale of machinery
on purchased on 1.10.2010 Rs.5,000.

Q.8
The Ganga transport company purchases 5 trucks at Rs. 10,00,000 each on 1.7.2007. On 1.1.2010 on of
the trucks is involved in an accident and is completely destroyed. A sum of Rs. 400000 is received from
the insurers in full settlement. On the same date, another truck is purchased by the company for Rs.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 15

12,00,000. The company writes off 20 per cent per annum on the straight line method basis and closes its
books every year on 31.March. Give the truck account for two years ending on 31.3.2011.
Balance in truck account Rs. 19,00,000. Loss on sale of truck Rs. 100000.

Q.9
A limited company purchased on 1.1.2008 a second hand machinery for Rs. 12,000 and immediately sent
st
Rs.8,000 on its overhauling. On 1 July in the same year additional machinery costing Rs.10,000 is
purchased. On 1.7.2010 the machinery purchased on 1.1.2008, having become obsolete is sold for
Rs.4,000 and on same date fresh plant is purchased at a cost of Rs.24,000.
Depreciation is provided at the rate of 10% p.a. on original cost on 31.12. of every year. In 2011,
however, the company changes the method of providing depreciation and adopts the method of writing off
15% per annum on the diminishing balance method.
Show the machinery account from 2008 to 2011.
Balance in machinery account on 31.12.2011 Rs 25755. Loss on sale Rs.11000.
Plant Account
1.1.2008 Bank (12,000 + 8,000) 20,000 31.12.08 Depreciation – 2,000 2,500
+ 500
1.7.2008 Bank 10,000 c/d 27,500
30,000 30,0000

1.1.09 Bal. b/d 27,500 31.12.09 Dep. 3,000

c/d 24,500
27,500 27,500

1.1.10 Bal. b/d 24,500 1.7.10 Bank a/c 4,000

1.7.10 Bank 24,000 Dep. 1,000
P&L 11,000
(20,000 – 5,000 -
4,000)
Dep. 1,000 + 1,200 2,200
Bal. c/d 30,300
48,500 48,500

1.1.11 Bal. b/d 30,300 31.12.11

Dep. 15% on 30,300 4,545
Bal. c/d 25.755
30,300 30,300

1.1.12 Bal. b/d 25.755

Computation of loss on Sale of machinery on 1.7.10
Cost of machinery sold [as on 1.1.08] 20,000
1
Less dep. @ 10% p. a. for 2 years 5,000
2
Book value as on 1.7.2010 15,000
Less realised value 4,000
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 16

Loss on sale of machinery 11,000

Solution has been done as per provisions of AS-10

Q.10 - Exam- 06
X purchased a second hand machinery on 1.2.2001 for Rs.50,000 and paid Rs. 11,000 for it’s over
hauling and Rs. 5,000 for its installation which was completed by 31.3.2001. The company provides
depreciation on its machinery at 15% on diminishing balance method from the date it was put to use and
st
closes its books on 31 of December every year. On 1.10.2002, a repair work was carried out on the
machine and Rs. 5,000 were paid for the same. The machine was sold on 31.10.2003, for a sum of Rs.
11,000 and an amount of Rs. 1,000 was paid as dismantling charges. Prepare machinery account from
2001 to 2003.
Answer : loss on sale Rs. 33566.
1.2.2001 Bank 50,000 31.12.01 Depreciation – 15% 7,425
of 66,000 for 9
months
31.3.2001 Bank 16,000 c/d 58,575
66,000 66,000

1.1.02 Bal. b/d 58,575 31.12.02 Dep. : 15 % of 8,786

55,875
c/d 49,789
58,575 58,575

1.1.03 Bal. b/d 49,789 1.10.03 Bank a/c 10,000

Bank Dep. 15% on 49,789 6,223
for 10 months
P&L : bal. fig. 33,566
49,789 49,789

Key Notes :
Repairs cost is not capitalised since it is a routine expense.
Cost of dismantling has been deducted from sale price for calculating loss on sale of machine

Q. 11
Neha limited purchased a machine on 1.1.2000 for Rs. 1,60,000 and spent on its over- hauling Rs.
40,000. Another machine was purchased on 1.7.2000 for Rs. 80,000. On 1.7.2002, the machine
purchased on 1.1.2000 was sold for Rs. 1,00,000. On the same date another machine was purchased for
Rs. 30,000 and was installed on 30.9.2002.
Under the existing practice, the company provides depreciation at 10% on original cost. However, from
2003, it was decided to adopt written down value method and to charge depreciation at the rate of 15%
per annum.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 17

Prepare Machinery account in the books of Neha limited from 2000 to 2003.
Answer : Balance in machinery account Rs. 69983. Loss on sale Rs. 50000
Books of Neha limited
Machinery Account
1.1.2000 Bank (1,60,000 + 2,00,000 31.12.00 Depreciation – 24,000
40,000) 20,000 + 4,000
1.7.2000 Bank 80,000 c/d 2,56,000
2,80,000 2,80,000

1.1.01 Bal. b/d 2,56,000 31.12.01 Dep. 20,000 +8,000 28,000

c/d 2,28,000
2,56,000 2,56,000

1.1.02 Bal. b/d 2,28,000 1.7.02 Bank a/c 1,00,000

30.9.02 Bank 30,000 Dep. 10,000
P&L 50,000
31.12.02 Dep. 8,750
Bal. c/d 89,250
2,58,000 ,2,58,000

1.1.03 Bal. b/d 89,250 31.12.03

Dep. a/c 13,387.50
c/d 75,862.50
89,250 89,250.00
Solution has been done as per Provisions of AS -10

Q. 12- Machinery Disposal account

Company X charged depreciation at the rate of 20% on written down value. Machinery costing Rs.
1,00,000, Rs. 40,000 and Rs. 30,000 were purchased on 1.1.2000, 17.2001 and 1.10.2002 respectively.
On 1.10.2003, machinery purchased on 1.7.2001 was damaged and replaced by a new machine costing
Rs. 50,000. The damaged machinery was insured and an insurance claim of Rs. 24,800 was admitted by
Insurance Company. The scrap was sold for Rs. 2,200.
Show the machinery account, accumulated depreciation account and machinery account for the year
2003.
Balance in machinery a/c Rs. 180000. Balance in accumulated depreciation account Rs. 68740.
Loss on sale of machinery Rs. 2520.
Date of purchase 1.1.2000 1.7.01 1.10.02 1.10.03
Cost of machinery 1,00,000 40,000 30,000 50,000
Dep. For 2000 20,000 - - -
WDV on 1.1.01 80,000 - - -
Dep. For 01 16,000 4,000 - -
WDV on 1.1.02 64,000 36,000 - -
Dep. For 02 12,800 7,200 1,500 for 3 -
months
WDV on 1.1.03 51,200 28,800 28,500 -
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 18

Dep. For 03 10,240 4,320 for 9 5,700 2,500 for 3

months months

Balance of accumulated depreciation account as on 1.1.03

[20,000 + 16,000 + 12,800] + [ 4,000 + 7,200 ] + [1,500] = 61,500
Accumulated depreciation on Machinery sold
4,000 +7,200 + 4,320 = 15,520
Machinery account

1.1.03 Bal. b/d 1,70,000 1.10.03 Machinery disposal 40,000

a/c
1,00,000+ 40,000 + 30,000 c/d 1,80,000
1.10.03 To bank 50,000

Accumulated Depreciation Account

1.10.03 Machinery Disposal a/c 15,520 1.1.03 Bal. b/d (notes) 61,500
1.10.03 Dep. a/c 4,320
1.12.03 Bal c/d 68,740 31.12.03 Dep. a/c 18,440
10,240
+5,700+,2,500

Machinery Disposal Account

1.10.03 Machinery a/c 40,000 1.10.03 Acc. Dep. a/c 15,520

P&L a/c – B.F. 2,520 Bank 2,200
Insurance co. a/c 24,800

42,520 42,520

Q - 13
A purchased a machinery on 1.1.2000 for Rs. 1,94,000 and spent Rs. 6,000 on its erection. On 1.7.2000
additional machinery was purchased for Rs. 1,00,000. On 1.7.2002, the machinery purchased on
1.1.2000 having become obsolete, was sold for Rs. 1,00,000 and on the same date yet another
machinery was purchased at a cost of Rs. 1,50,000. Depreciation was provided for annually on 31sr
December at the rate of 10% per annum on the original cost of machinery.
No depreciation need be provided when machinery is sold or auctioned for that part of the year in which
such sale or auction takes place. But for the above depreciation shall be provided on time basis. In 2003,
however, A changed this method of providing depreciation and adopted the method of writing off 15% p.a.
on the written down value on the balance as appeared in machinery account on 1.1.2003. Show the
machinery account for the calendar years 2000 to 2003.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 19

Balance in machinery account as on 31.12.2003 Rs. 174745 - Additional depreciation on

retrospective adjustments Rs. 11919; Loss on sale Rs. 60000.

Q – 14 – Provision for Depreciation Account

X limited acquired a machine on 1.1.18 for Rs. 3,20,000. The company charges depreciation at the rate of
20% p.a on straight-line method basis. During 2020 a modification was made at a cost of 32,000 which it
was considered would extend the useful life of the machine by 2 years. At the same time an important
component of the machine was replaced at a cost of Rs. 20,000, because of excessive wear and tear.
Routine maintenance during the year cost Rs. 5,000.
Show Machinery account and provision for depreciation a/c for the year ended 31.12.2020.
Balance in machinery a/c Rs. 372000 and balance in provision for depreciation a/c Rs. 176800.
Revised depreciation per year shall be Rs. 244000/5 = 48800

Q -15
X and Company purchased a machine for Rs.1,60,000 on 1.4.2015. On 1.10.2016 another machine was
purchased for Rs. 104,000. On 1.10.2017, first machine was sold for Rs. 1,20,000. On the same date,
another machine was purchased for Rs. 1,00,000. On 1.10.2018 the second machine was sold for Rs.
st
92,000. Rate of depreciation was 10% on original cost annually on 31 March. In 2018, the method of
charging depreciation was changed to diminishing balance method, the rate being 15%.
Prepare Machine account for the years ending 31.3.2016, 2017, 2018 and 2019.
Balance in Machinery a/c Rs. 78,625, loss on sale of first machine Rs. Nil, gain on sale of second
machine Rs. 14,320.

Q – 16 – Provision for Depreciation

Metropolis limited acquired a machine for Rs. 5,40,000 on 1.4.2010. Depreciation was to be charged at
20% on straight line method. During 2012-13, a modification was made to improve its technical reliability
at a cost of Rs. 50,000 which it was considered would extend the useful life of machine for two years. At
the same time an important component of the machine was replaced at a cost of Rs. 10,000 because of
excessive wear and tear. Routine maintenance during the said period amounted to Rs. 7,500. Show the
machine account, provision for depreciation account for the year ended 31.3.2013.
Balance in machinery account Rs. 600000 and balance in provision for depreciation account Rs.
292800. Revised depreciation per would be 384000 / 5 = 76800.
Machinery
Balance as at 31.03.11 5,40,000
Balance as at 31.03.12 5,40,000
Modification made 50,000
Balance in machinery as at 31.03.13 6,00,000

Provision for depreciation

Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 20

Depreciation for the year ended 31. 03.11 1,08,000

Depreciation for the year ended 31. 03.12 1,08,000
Total 2.16.000
Depreciation for 12-13 76,800
3,84,000 /5
Balance as at 3103.13 = 2,92,800

Since life of the machinery has increased by 2 years it means 5 years are still remaining.
So depreciation on Revised cost shall have to computed for 12-13
Revised cost means written down value of machine as at 31.03.12 + Modifications made
= (5,40,000 -2,16,000) + 20,000 = 3,84,000

MCQ

1. Depreciation is a process of _________.

A. valuation.
B. reduction.
C. allocation.
D. appreciation.
Answer: C

2. The main objective of providing depreciation is _______.

A. to calculate true profit.
B. to calculate financial position.
C. to reduce tax burden.
D. to reduce profit.
Answer: A

3. Depreciation arises because of_____.

A. fall in the market value of an asset.
B. physical wear and tear.
C. fall in the value of money.
D. rise in the value of money.
Answer: B

4. Under the straight line method of charging depreciation, depreciation ____.

A. increases every year.
B. decreases every year.
C. is constant.
D. fluctuate every year.
Answer: C
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 21

5. Under the diminishing balance method depreciation is calculated on____.

A. original value.
B. written down value.
C. scrap value.
D. market value.
Answer: B

6. The amount of depreciation charged on machinery will be debited to_____.

A. machinery account.
B. depreciation account.
C. cash account.
D. bank account.
Answer: B

7. Examples of non-trading concerns are ________.

A. Commercial banks
B. Civil hospital
C. Joint stock company
D. Private educational institutions
Answer: B

8. Depreciation is provided on ________.

A. current asset .
B. fixed assets.
C. fictitious assets.
D. investment.
Answer: B

9. The permanent, continuing and gradual shrinkage in the book value of a fixed asset is called _______.
A. depreciation .
B. appreciation.
C. reduction.
D. computation.
Answer: A

10. Depreciation is charged on the_________.

A. market value.
B. Depreciable value.
C. purchase value.
D. sale value.
Answer: B

11. Depreciation is charged on_________.

A. continuous basis.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 22

B. temporary basis.
C. daily basis.
D. monthly basis.
Answer: A

12. Loss of usefulness occasioned by improved production methods is known as_______.

A. physical deterioration.
B. obsolescence.
C. disuse.
D. inadequacy.
Answer: B

13. Mines, quarries, oilfields and forest are example of _______.

A. fixed assets.
B. current assets.
C. wasting assets.
D. intangible assets.
Answer: C

14. Depreciation applies to________.

A. current assets.
B. wasting assets.
C. intangible assets.
D. fixed assets.
Answer: D

15. The main source of income for non-trading concern is _________.

A. Subscription
B. Sales
C. Dividend on investment
D. entrance fee
Answer: A

16. The control of non-trading concern rest in the hand of

A. Directors
B. Managing agents
C. Governing body
D. Promoters
Answer: C

17. Estimated sale value of the asset at the end of its economic life is known as _____.
A. purchase value.
B. market value.
C. written down value.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 23

D. residual value.
Answer: D

18. Provision for depreciation account appears on the _______.

A. Asset side.
B. Liability side.
C. P & L account debit side.
D. P & L account credit side.
Answer: B

19. If the asset is sold, the provision for depreciation relating to the asset sold is transferred to _______.
A. asset account.
B. liability account.
C. P & L account.
D. trading account.
Answer: A

20. The asset account appears in the books at original cost when a ______.
A. P & L account is maintained.
B. balance sheet is maintained.
C. provision for depreciation account is maintained.
D. provision for depreciation account is not maintained.
Answer: C

21. The value of asset can be reduced to zero under this method _____.
A. straight line method .
B. written down value method.
C. annuity method.
D. depreciation fund method.
Answer: A

22. The balance in the asset account will not be reduced to zero under this method _____.
A. straight line method .
B. written down value method.
C. annuity method.
D. depreciation fund method.
ANSWER: B

23. Income tax authorities recognize this method ______.

A. straight line method .
B. written down value method.
C. annuity method.
D. depreciation fund method.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 24

Answer: B

24. Under which method of depreciation, the earlier year of the life of the asset, profits are more _____.
A. straight line method.
B. written down value method.
C. annuity method.
D. depreciation fund method.
Answer: A

26. If debit side of receipt and payment account exceeds credit, it represents __________.
A. Cash at bank
B. Bank overdraft
C. Deficit balance
D. Surplus balance

Answer: A
27. Diminishing balance method is also called _________.
A. written down value method .
B. annuity method.
C. depreciation fund method.
D. Fixed installment method.
Answer: A

28. Under annuity method the amount of depreciation is found out from _____.
A. log tables.
B. sinking fund tables.
C. annuity tables.
D. present value tables.
Answer: C

29. Depreciation fund is also called ______.

A. reserve fund.
B. compensation fund.
C. workers fund.
D. sinking fund.
Answer: D

30. Under depreciation fund method, the amount of depreciation is calculated with reference to
________.
A. log tables
B. sinking fund tables
C. annuity tables
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 25

D. present value tables

Answer: B

32. Under depreciation fund method depreciation is charged to ______.

A. profit and loss account.
B. trading account.
C. balance sheet.
D. p & l appropriation account.
Answer: A

33. What is depreciation?

A. Cost of a fixed asset
B. Cost of a fixed assets repair
C. The residual value of fixed asset
D. Portion of a fixed assets cost consumed during the current accounting period
Answer: D

34. A company purchased a vehicle for Rs.6000. I will be used for 5 years and its residual value is
expected to be Rs.1000. What is the annual amount of deprecation using straight line method of
depreciation?
A. Rs.3000
B. Rs.2000
C. Rs.1000
D. Rs.3300
Answer: C

35. What is the accumulated depreciation?

A. Sum of all depreciation expenses of a fixed asset
B. Depreciation expenses
C. Cost of depletion of assets
D. Future value of fixed asset
Answer: A

36. A fixed asset was bought for Rs.5000. Its accumulated depreciation is Rs.3000 and rate of
depreciation is 20%. Calculate its depreciation expenses for the current accounting period using reducing
balance method?
A. Rs.600
B. Rs.500
C. Rs.750
D. Rs.400
Answer: D

37. The difference between the book value at the beginning and at the end (revaluation amount) is
__________.
A. depreciation.
Sanjay K. Welkins’ Lectures on ‘Accounting For Depreciation’ Page - 10. 26

B. appreciation.
C. reduction.
D. computation.
Answer: A